Rarely does a major financial institution aim to eliminate the very sources of revenue that stuff executives’ pockets in the first place.
But this has been a running theme in the short but powerful history of London-listed money transfer disruptor Wise PLC (LSE:WISE).
In fact, under Mission Zero, Wise wants to eliminate transaction fees in their entirety.
Whether driven by some sort of fundamental zealotry or savvy disruptive business practices, Wise’s founders Taavet Hinrikus and Kristo Käärmann have often gone on record espousing their lofty ambitions.
“Moving money is like sending an email: we’re moving bits and bytes around so the marginal cost will approach zero. Can we eventually make it free? We're going to try,” reads the corporate manifesto.
So how is Mission Zero going?
In contrast to the company manifesto, Wise’s fees have only gone up, with variable fees for converting and sending pounds into euros rising from 0.47% to 0.56% this April, and euro into US dollars increasing from 0.47% to 0.49% fee.
For the record, this is still an exceptionally good price for international transfers, and a fraction of what a bank charges to conduct SWIFT transfers.
Which leads us back to the core question: How does Wise intend to make money while sticking to its mission statement?
Firstly, economies of scale are working pretty well right now: Wise just posted a trebling of profit to £146.5mln and a 50% jump in revenues to £846.1mln.
Customer growth of 24% led to a 37% year-on-year increase in volumes to £104.5bn.
It’s more than just transfer fees driving these profits. Net interest income accounted for £118.1 in revenues for the 2023 financial year. So it wasn’t just the banks benefitting from the Bank of England’s interest rate hiking supercycle.
But aside from a middling £18.5mln in cashback payments, customers have unfortunately not taken a share of these spoils, even though Hinrikus and Käärmann have expressed their desire to pay it forward in previous earnings calls.
There’s a problem here: Wise is not a bank and therefore is not allowed to direct pay interest to its customers. This has created a situation where Wise earns interest from its account holders, but doesn’t pay any in return.
It’s a banker’s dream scenario, right? Not if customers get fed up and look elsewhere for healthy interest rates.
Thankfully, Wise account holders are still able to earn 4.12%... but how? The concept is simple enough: Your money is kept in a BlackRock fund holding government-backed short-term loans.
Wise’s customers put their money to work, BlackRock earns a few quid on management fees, Wise gets a small rebate from BlackRock on top of a service fee, and everyone’s happy.
But it is just a short-term solution? Interest rates will go back to zero one day down the line, and if Mission Zero really is the end goal, is Wise acting as the architect of its own destruction?
Whether they are or not, investors appear extremely bullish, with Wise shares closing the session over 16% higher on the back of today’s full-year earnings call.
Long-term performance, however, may be another story.